Albertsons Companies(ACI) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Condensed Consolidated Financial Statements (unaudited) This section presents the unaudited interim financial statements for the 16-week period ended June 18, 2022, including balance sheets, income statements, cash flow statements, and accompanying notes Condensed Consolidated Balance Sheets As of June 18, 2022, total assets increased slightly to $28.22 billion, with total stockholders' equity rising to $4.07 billion from $3.02 billion at fiscal year-end 2021 Condensed Consolidated Balance Sheets (in millions) | Account | June 18, 2022 | February 26, 2022 | | :--- | :--- | :--- | | Total Current Assets | $8,678.2 | $8,366.4 | | TOTAL ASSETS | $28,220.0 | $28,123.0 | | Total Current Liabilities | $7,912.3 | $8,348.5 | | Total Liabilities | $24,149.4 | $25,098.4 | | Total Stockholders' Equity | $4,070.6 | $3,024.6 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $28,220.0 | $28,123.0 | Condensed Consolidated Statements of Operations and Comprehensive Income For the 16 weeks ended June 18, 2022, net sales and other revenue increased to $23.31 billion, with net income rising to $484.2 million and diluted EPS reaching $0.84 Statement of Operations Highlights (in millions, except per share data) | Metric | 16 Weeks Ended June 18, 2022 | 16 Weeks Ended June 19, 2021 | | :--- | :--- | :--- | | Net sales and other revenue | $23,310.3 | $21,269.4 | | Gross margin | $6,545.0 | $6,191.0 | | Operating income | $760.1 | $687.1 | | Net income | $484.2 | $444.8 | | Diluted net income per Class A common share | $0.84 | $0.78 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities decreased to $991.9 million for the first 16 weeks of fiscal 2022, while cash and cash equivalents increased to $3.26 billion by period-end Cash Flow Summary (in millions) | Cash Flow Activity | 16 Weeks Ended June 18, 2022 | 16 Weeks Ended June 19, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $991.9 | $1,059.0 | | Net cash used in investing activities | ($551.4) | ($493.0) | | Net cash used in financing activities | ($129.5) | ($109.2) | | Net increase in cash and cash equivalents | $311.0 | $456.8 | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, revenue recognition, debt, and legal contingencies, highlighting a significant increase in LIFO expense and ongoing opioid litigation - LIFO expense increased to $62.1 million for the 16 weeks ended June 18, 2022, compared to $14.5 million for the same period in 2021, reflecting an inflationary environment[15] - The company's revenue is disaggregated into Non-perishables (49.1%), Fresh (33.8%), Pharmacy (8.3%), Fuel (7.1%), and Other (1.7%) for the first quarter of fiscal 2022[25] - The company is a defendant in over 90 lawsuits related to the national opioid epidemic, with active cases in New Mexico and Nevada, and is unable to determine the probability of outcome or range of loss[55] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses strong Q1 2022 performance, with 9.6% net sales growth driven by identical sales and higher fuel prices, alongside increased digital sales and loyalty program membership, while addressing inflationary impacts and reaffirming capital expenditure plans - Identical sales increased by 6.8% and digital sales grew by 28% in Q1 2022 compared to Q1 2021[83][84][91] - The Just for U loyalty program grew by 16% year-over-year to 31 million members, with a retention rate of over 90% for actively engaged members[84] - Own Brands sales penetration reached a high of 25.8% during the first quarter of fiscal 2022[87] Q1 2022 Financial Highlights | Metric | Q1 2022 | Change vs. Q1 2021 | | :--- | :--- | :--- | | Net Income | $484 million | +8.9% | | Adjusted Net Income | $582 million | +12.5% | | Adjusted EBITDA | $1,420 million | +8.6% | | Diluted EPS | $0.84 | +7.7% | | Adjusted Diluted EPS | $1.00 | +12.4% | Results of Operations Net sales and other revenue increased 9.6% to $23.31 billion in Q1 2022, driven by identical sales and higher fuel prices, while gross margin rate decreased to 28.1% and selling and administrative expenses as a percentage of sales decreased to 25.2% - Net sales and other revenue increased 9.6% to $23.31 billion, driven by a 6.8% increase in identical sales and higher fuel sales[97] - Gross margin rate decreased to 28.1% from 29.1% in the prior year, with a 27 basis point decrease excluding fuel and LIFO, mainly due to fewer high-margin COVID-19 vaccine administrations[102] - Selling and administrative expenses as a percentage of sales decreased by 70 basis points to 25.2%, primarily due to sales leverage, lower COVID-19 expenses, and productivity initiatives[103] Liquidity and Capital Resources The company maintains strong liquidity with $991.9 million in operating cash flow, forecasting $2.0 billion to $2.1 billion in fiscal 2022 capital expenditures, and believes current resources are sufficient for future needs - Net cash provided by operating activities was $991.9 million for the first quarter of fiscal 2022[121] - Capital expenditures for the quarter were $613.8 million, with the full-year fiscal 2022 forecast between $2.0 billion and $2.1 billion[123][124] - As of June 18, 2022, the company had no borrowings outstanding under its ABL Facility and total availability of $3.75 billion[130] Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the company's market risk exposure since the last annual report on Form 10-K - There have been no material changes in the company's exposure to market risk since the last annual report[132] Controls and Procedures The Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures are effective, with no material changes to internal control over financial reporting during the quarter - The company's disclosure controls and procedures were deemed effective by the CEO and CFO[133] - No changes in internal control over financial reporting occurred during the first quarter of fiscal 2022 that have materially affected, or are reasonably likely to materially affect, internal controls[134] PART II - OTHER INFORMATION Legal Proceedings The company is subject to routine legal proceedings, including an agreement in principle to pay $6.9 million to settle a California investigation regarding underground storage tanks - The company has reached an agreement in principle to pay $6.9 million to settle an investigation by the State of California concerning underground storage tanks at its fueling stations[137] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's most recent Annual Report on Form 10-K - There have been no material changes to the risk factors previously included in the company's most recent Annual Report on Form 10-K[138] Unregistered Sales of Equity Securities and Use of Proceeds The company issued 256,162 shares of common stock upon conversion of Convertible Preferred Stock, exempt from registration under the Securities Act of 1933 - On July 6, 2022, the company issued 256,162 shares of common stock upon the conversion of approximately 4,411 shares of Convertible Preferred Stock, relying on a registration exemption under Section 3(a)(9) of the Securities Act[138] Other Information New employment agreements were executed with the EVP & COO and EVP & CTO, effective July 20, 2022, amending their prior contracts regarding employment terms and termination provisions - New employment agreements were executed for the EVP & COO (Susan Morris) and EVP & CTO (Anuj Dhanda), which amend the term of employment to be continuous until termination and modify termination benefits[141][142][143] Exhibits This section lists exhibits filed with the Form 10-Q, including a Lock-Up Agreement, new executive employment agreements, and Sarbanes-Oxley Act certifications - The exhibits filed with this report include new employment agreements for the COO and CTO, and certifications by the CEO and CFO as required by Sections 302 and 906 of the Sarbanes-Oxley Act[145][146]